U.S. stock markets experienced a downturn on Wednesday as Treasury yields increased, sparking investor concerns over potential interest rate hikes from the Federal Reserve. The S&P 500 fell 0.3%, the Nasdaq Composite decreased by 0.5%, and the Dow Jones Industrial Average lost 159 points, also down 0.3%.
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The drop was primarily driven by declines in utilities, consumer discretionary, and communication services sectors, which all dropped over 1%. The materials sector also lagged, showing a nearly 1% decrease.
Treasury yields surged following strong economic data, with the yield on the 10-year Treasury note reaching 5.058%, the highest level since July 2007. Meanwhile, the 2-year Treasury note yield rose by almost 10 basis points to 4.874%.
Federal Reserve Governor Michael Barr indicated that further policy adjustments may be necessary to control inflation, which currently exceeds the Fed's 2% target. He noted that while economic growth and the labor market remained robust, risks related to inflation have increased, while those concerning employment have diminished. Following Barr's remarks, the likelihood of a quarter-point rate hike in October surpassed 60%, compared to just 8.8% a month ago, according to the CME FedWatch tool.
In commodities, crude oil futures also saw increases. Brent crude for November delivery rose by 2% to around $101 per barrel, while U.S. West Texas Intermediate crude increased by 1% to approximately $91 per barrel.
On another note, President Donald Trump announced that U.S. and Iranian officials held a three-hour meeting during the UN General Assembly, describing it as a "very good meeting." In a speech earlier, Trump mentioned he faced a significant decision regarding a potential deal with Iran or further conflict.
Earlier in the week, the Nasdaq had reached a new intraday high, closing at a record on the previous session, while the Dow ended lower. The S&P 500 remained about 0.8% off its all-time high.